The GBP/USD exchange rate has given up much of its previous rally heading into this past weekend as financial markets seemed to contemplate what surprisingly strong producer price inflation in July could mean for a measure of US inflation that the Fed monitors. During last week's trading, there was a single opportunity for the GBP/USD pair to rebound upwards, which culminated in testing the resistance level of 1.2818, from which it quickly returned to its downward path toward the support level of 1.2661, and closed last week's trading around the level of 1.2691.
Overall, the US dollar was higher during most of Friday's trading session but rose further into the European close after the Bureau of Labor Statistics said that both monthly measures of business production costs rose 0.3% last month when experts expected increases of just 0.2% in each measure. Commenting on this, Ryan Brandham, global financial markets analyst at Validus Risk Management, said that “This indicates that the battle against inflation may not be over yet in the United States. This outcome could lead to a stronger dollar today, and higher US revenues.”
The PPI numbers measure changes in the cost of wholesale goods and on Friday seemed to indicate that price pressures picked up again in July, prompting some economists to wonder aloud whether there will be a similar development in the next release of the core PCE price index. . The latter is the US Fed's preferred and target inflation measure and it fell to a monthly pace of 0.2% in June, from 0.3% previously, which puts it running at an annualized rate of 4.1% and within reach of the US average inflation target of 2%.
Purchasing the US dollar after a later reported decline in US consumer confidence as measured by the University of Michigan was not deterred by an accompanying detail indicating a modest drop in short- and long-term inflation expectations during August. Friday's data follows the consumer price inflation reading for July released on Thursday and points to a more moderate recovery in both headline and annual measures of price growth last month, with the former rising slightly from 3% to 3.2% while the latter surprising on the low side of expectations.
The core US inflation rate fell from 4.8% to 4.7% in July when it was widely expected to remain unchanged and is watched closely by global central bankers to ignore changes in volatile energy and food prices, prompting policymakers to look It is the best reflection of the inflation generated in the local economy.
“We think it is right that the market remains skeptical that the Fed will continue to raise the final US interest rate that it projected in its updated outlook for June,” James Knightley, chief economist at ING, wrote in a commentary on the economy on Friday.
“With headwinds from rising borrowing costs and tightening lending conditions intensifying economic headwinds and resuming student loan repayments in October expected to strain the finances of millions of households, we expect the Fed to leave US interest rates on hold until early 2024 with a strong chance to cut interest rates as early as March,” he added.
As for the British pound, Friday's data choked an earlier rally in the pound against the dollar supported by stronger than many in the market expected British economic growth figures, leaving it struggling for a foothold near a key level of technical support on the charts coming out of the weekend.
GBP/USD Technical Outlook
- According to the performance on the daily chart below, the price of the GBP/USD currency pair still tends to decline further, and the bears' control will increase if it moves towards the next most important support levels 1.2600 and 1.2520, respectively.
- The last level is sufficient to push the technical indicators toward strong oversold levels.
You can think of buying from them and at least without risk. On the other hand, and for the same time period, the bulls will not control the direction of the GBP/USD pair without moving above the psychological resistance at 1.3000 again. I expect a very quiet trading session today.
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